Store kiosks finally come of age in multi-channel strategies

Web-based kiosks have long offered the promise of changing the way consumers shop in stores, but retailers have been reluctant to employ them. Some argue that they change the shopping experience too much by implying that retailers need not stock everything that a customer is seeking.

But with the rise of multi-channel retailing, opposition to kiosks is fading. In a study of 100 specialty retailers earlier this year by consultants LakeWest Group Inc., 33% were using store kiosks, the majority web-based, to serve customers, up from 25% a year earlier. In addition, Staples Inc. is talking about the success of its web-based kiosks in promoting sales and allowing it to design smaller, more shopper-friendly stores.

And now Office Depot Inc., the largest office supply chain, is getting on the kiosk train. It announced in June that it is rolling out more than 7,000 kiosks nationwide, going Staples one better in its deployment with eight kiosks per store vs. Staples’ four to six. “Everyone is talking to me about kiosks,” says Sunita Gupta, vice president and retail analyst at Cleveland-based LakeWest Group. “It may not be in their short-term plans, but they’re thinking about what kiosks mean for their business.”

As part of a store redesign program kicked off early this summer, Office Depot is installing eight kiosks in each of its 900 stores that let customers order products from OfficeDepot.com, configure personal computers and research their personal loyalty points and shopping history.

It’s taking a play from Staples, which is cited by analysts as a leader not only in kiosk deployment but also in how it uses kiosks. “Staples is the best at it,” says Francie Mendelsohn, president of kiosk research and analyst firm Summit Research Associates. “They’ve had more success than others. I’m in Office Depot stores all the time, and their kiosks are rarely used.”

That may change, though. In some ways, Mendelsohn notes, Office Depot is raising the bar of kiosk competition by placing more kiosks per store than Staples and deploying them in innovative ways. For instance, Office Depot is using wireless kiosks on portable stands designed to be moved to different store departments as traffic demands, while Staples’ kiosks are stationary.

Whether Office Depot’s new approach will be more effective than Staples’ in generating sales and building stronger multi-channel relationships with customers remains to be seen. “That’s a lot of kiosks per store, and it’s definitely raising the bar, but the retailer will have to make sure the kiosks are offering services that will attract customers to them,” Mendelsohn says. “You have to make them compelling.”

Web access in the store

The investment that both Office Depot and Staples are making in kiosks underscores the growing importance of kiosks as multi-channel tools as retailers seek to maximize use of their offline as well as online merchandising space.

The main purpose for having kiosks is to give customers access to the Internet and an alternate way to shop and conduct product research. 56% of retailers in the LakeWest survey let customers use them to place orders online as well as perform tasks like researching product information and checking product availability. LakeWest estimates that kiosks will generate $6.5 billion in sales for multi-channel retailers by 2006.

Store kiosks also offer new ways for customers to interact with salespeople and provide new cross-selling and customer service opportunities. They also free up space on the selling floor and in back-rooms for items that sell best in stores. In addition, kiosks open up ways for merchants to conduct administrative tasks like having job candidates fill out kiosk-based application forms that managers can also access through a web browser.

Although it doesn’t break out kiosk-driven sales, Staples says its kiosks have contributed to an increase in comp store sales, which rose 4% in the first-quarter of this year over Q1 of last year, and 5% in 2003 over 2002. “We are getting more sales from our existing square footage and kiosks are an element of this success,” says Mike Ragunas, vice president of technology strategy and architecture for Staples.

Making a kiosk program work well is not as easy as it looks and some retailers, though highly successful in other ways, have stumbled with kiosks for lack of an effective strategy, experts say. “You have to keep it simple, to let customers know at a glance what it will do for them, keep the kiosks working 100% of the time, and educate employees to let them know that kiosks are not a threat but an adjunct to the sales process,” says Mendelsohn.

Staples, she adds, scores highly in these areas. “They’ve involved their employees with kiosks and educated them about the value of kiosks as a sales tool,” she says. “In many cases, kiosks are seen as a self-service threat by employees. But Staples has done a really good job in not falling into that trap.”

Just as important, she adds, Staples has taught its employees to support customers in their use of kiosks. “You have to get buy-in from employees, but you also have to make sure the kiosks don’t become a crutch for employees who think they don’t have to help customers anymore,” she says.

Neutralizing the threat

Mendelsohn notes that when one grocery chain failed to educate employees about the advantages of referring customers to kiosks for ordering additional products and generating incremental sales, workers, who feared losing their jobs to the kiosks, covered the kiosks with bags and “Out of Order” signs. Headquarters managers could tell that the kiosks were still connected to the web, but they didn’t know why they weren’t generating orders. So they concluded customers weren’t interested in using kiosks and canceled the program, Mendelsohn says.

Staples has made employee training a corporate policy focused on engaging customers in the store, Ragunas says. “Our CEO has been very focused on driving a customer interaction model, so every associate is taught to engage every customer that comes into the store,” he says. “It’s reinforced in an ongoing program. Our goal is to interact with each customer at least once when they come into a store.”

Staples store employees, who do not work on commission, learned early on in their company’s kiosk program that kiosks can help fulfill that initiative by improving the shopping experience, Ragunas says. “Store associates have seen kiosks as a great way to satisfy customer needs and make shopping with Staples easy,” Ragunas says.

Gupta notes that retailers generally credit stores for at least part of kiosk-generated sales when store employees get involved in assisting customers at kiosks. Staples declines to say how stores are credited for kiosk sales.

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In addition to bringing employees on board with kiosks, Staples says it has had to think hard about how to put kiosks to their best use. “At first, we thought we would just plop Staples.com into stores on kiosks to give store customers the option to order online,” Ragunas says. “We had been making a significant investment in a first-class e-commerce site, and we wanted to leverage that investment to give the same online experience to the people in our stores.”

But Staples was aware that other online kiosk programs had not worked well, so it wanted to make sure its web strategy aligned with store goals, Ragunas says. “A lot of retailers had tried kiosks that were not used much, so we wanted them better integrated with our store experience,” he says. “So we thought about how we could create a different way to shop in our stores, with one of the goals to offer an expanded number of items.”

Management quickly realized that a link to Staples.com could dramatically expand store selection. A Staples store maintains 7,000 to 8,000 items, but Staples.com has about 50,000.

Freeing up floor space

One of the first roles of the kiosks was to help get better use of store space for storing and merchandising products. Merchandise managers dedicated to individual categories, including office furniture, computers and general office supplies, decide which products within their categories sell best in store displays, then work with one another and with buyers to figure the best overall display of merchandise. While store displays are reserved for the most commonly purchased items, including commodities like paper and printer supplies, merchandise managers also consider kiosk sales when planning assortments. “We focus our in-store assortment on the most common items customers purchase, but our merchants do consider kiosk and dot-com sales data in assortment decisions,” Ragunas says.

When Staples reduced the average store size to 20,000 from 24,000 square feet in response to growing demand from shoppers for smaller and easier-to-shop stores, the kiosks made it easier to maintain an effective level of store inventory, Ragunas adds. And a build-to-order feature for purchasing personal computers through kiosks not only provided a new level of customer service, but also cut store PC inventory. “It’s allowed us to reduce our store inventory of pre-configured PCs, which in many cases are not what customers are looking for,” Ragunas says. “And we’ve been able to drive strong sales of PCs as a result.”

Letting store customers customize PCs online has not reduced the amount of customer interaction with store employees, Ragunas says. In fact, it has increased it. “Most kiosk customers work with employees who coach them how to use the kiosk,” Ragunas says. “We train our associates to engage customers to make sure they’ll have what they need when they get home.”

Employee interaction with customers is the primary way Staples promotes its kiosks, which are not promoted in marketing efforts other than store signs, Ragunas says.

Staples has not opted for wireless kiosks as Office Depot has, even though it had to rewire parts of some stores to get all of its kiosks in place. “It’s important that store associates and customers be able to find the kiosks in the same location consistently,” Ragunas says. It does, however, equip store employees with wireless handheld devices that they can use to search merchandise records to assist customers with product information or to place special orders online.

The kiosks also support cross-selling efforts. While shopping online at them, customers will see the usual pop-up windows that suggest complementary PC items like surge protectors. And Staples has designed the kiosk display to encourage users to combine online and regular store shopping.

Since their launch in 2001, for example, the kiosks have offered Staples store customers the option of ordering products online and either paying at the kiosk by entering a credit card number online or paying at a store POS terminal, where cashiers can recommend complementary products.

Easier interactions

The option to pay at the store cash register has proven popular with customers, who say they appreciate the convenience of paying only once for products ordered at the kiosks as well as others picked up in the store, Ragunas says, noting that Staples routinely conducts telephone surveys of customers to get feedback on store policies. “We’re always looking for ways to make it easier for customers,” he says, “and this makes it easier for them to have one checkout interaction with us. Most kiosk customers choose to pay at the store cash register.”

In focus groups, Staples learned that many customers wanted a faster way to place online orders at kiosks before paying at the store POS terminal. They wanted to avoid having to completely log on with full account information. Under the initial system, the kiosk required customers to enter extensive personal data to place an order whether they wanted to pay at the kiosk or at the POS counter. “We created a fast-track option for them to just put in basic information like name and shipping address, then print out an order form to take to the cash register,” Ragunas says.

Because the POS software, the kiosks and Staples.com are linked through servers at Staples headquarters, orders placed at kiosks are entered directly into the POS system, letting store cashiers access them through their POS terminal. An alternative method is for the cashier to scan in a barcode on the kiosk-printed order form.

If a kiosk order is placed with an online credit card payment, the order is immediately sent into the fulfillment system for delivery. If a customer pays at the store counter, the order is placed on hold within the Staples.com system until payment is made at the POS terminal. Once payment is completed, the store POS system automatically sends a confirmation to the order management system at Staples headquarters to clear the order for fulfillment and delivery, Ragunas says.

The fast-track system encourages customers to order at kiosks and pay at the counter, helping to increase opportunities for store clerks to interact with customers and suggest additional purchases, Ragunas says.

The kiosks—which are thin-client desktop computers provided by Wyse Technology Inc.—integrate with Staples’ POS system, which operates with software from NSB Group (formerly STS Systems) and hardware from Fujitsu Transaction Solutions Inc. Thin-client kiosks cost $350 to $1,000 based on power and functionality, according to Wyse.

Gupta of LakeWest notes that most store kiosks, including thin-clients, will cost about the same as cash registers to install with all necessary wiring and system integration, from $3,000 to $5,000 per unit.

Multi-channel shopping offered by store kiosks helps Staples further benefit from the tendency of customers to spend more when they shop in more than one channel. “Customers who interact with us both in stores and our catalog are worth about two and a half times as much as customers who shop only in the store or in the catalog, but if customers shop all three channels, including the web, they’re worth four and a half times as much,” Ragunas says. He adds that Staples places stacks of catalogs next to its kiosks.